Saturday, November 11, 2006

Skills development and employment creation

Is Skills development the epicentre of employment creation and poverty reduction in South Africa?

November 2006

It is particularly relieving that government and various if not all sectors of South African society have acknowledged the conspicuous reality that the country’s economic growth and fiscal stability over the past 12 years has been largely jobless, and somewhat failed to systemically address the massive poverty challenge. The United Nations Human Development Programme (UNDP), recently observed that “at least between the years 1995 – 2000, for which there is adequate data—economic growth was associated with declining incomes across households at all income levels, but with the sharpest income declines occurring among the least well off”.

Despite an acknowledgment of this inopportune reality, there seem to be continuous misdiagnosis and/or inattention to the real reasons why South Africa has experienced a jobless growth. This is particularly worrying, since policy positions and responses from all responsible and concerned stakeholders will continue to miss the point and persistently fail to effectively address the employment creation objective, which is at the centre of poverty reduction in South Africa. It is almost clinically proven that there is a direct link between quality jobs and poverty reduction.

The recently adopted and in full swing Accelerated and Shared Growth Initiative for South Africa (ASGI-SA) seem to be placing much emphasis on skills production and acquisition. Skills acquisition initiatives and programmes, mainly under the auspices of the Joint Initiative on Priority Skills Acquisition (JIPSA), are being fast tracked in South Africa, and that is highly commendable. For higher levels of growth and development, South Africa needs high levels of both quality and quantity in skills, education and training. Yet questions continue to arise if really, skills development is exclusively the epicentrum of the twin concerns of job creation and poverty reduction in South Africa.

Notwithstanding the good intentions of ASGI-SA and JIPSA, recently available analyses of the South African political economy presents a very persuasive argument on why a narrow focus on skills production and acquisition radically misses the point about employment creation and poverty reduction. These analyses ought to be read in context, and should really get policy makers in South Africa thinking. First is Harvard University Centre for International Development (CID) Dani Rodrik’s assessment of South African economy and comparison with the Malaysian economy, titled “Understanding South African Economic Puzzles”. Second is the UNDP recent publication titled “An Employment Targeted Economic Programme for South Africa”.

Rodrik’s paper argues empirically and in comparison with the Malaysian economy that since 1994, South Africa has undergone a process of de-industrialisation. Rodrik states that “as of the mid-1980s, South Africa still had larger manufacturing base—roughly 12 percent of its total labour force was employed in manufacturing… the proportion employed in manufacturing has come steadily down, to below 7 percent by 2000”. Rodrik illustrates the point that “around the mid-1970s, the share of manufactured exports in GDP stood at around 6-7 percept in both countries (SA and Malaysia)… by 2004, this figure had increased to more than 80 percent in Malaysia, but only 12 percent in South Africa.

Certainly there are various reasons and patterns why industrialisation took the pattern it did in both Malaysia and South Africa, yet an important observation discerned out of this is the reality that an expansion of manufacturing significantly addressed the unemployment challenge. Rodrik argues that the view that skills shortage is a constraint to economic growth only applies to South Africa because structurally, the South African economy expanded the skills intensive tertiary sectors at the expense of low-skills intensive tradable sectors. This conspicuously explains the current government’s harping on skills development and acquisition through ASGI-SA and JIPSA.

The UNDP attributes the levels of mass unemployment in South Africa to two factors: “insufficiency in the rate of output growth” and “declining labour intensity of production in the formal economy”. The UNDP argues concerning the first factor that economic growth was not sufficient to keep up with the growing population, particularly as it relates to job creation. Secondly, the UNDP illustrates the point that the number of workers utilised per output… fell by average of four percent between 1967 and 2001. After making these observations, the UNDP projects that if South Africa proceeds along this approximate growth pattern for the next decade, it is estimated—using a series of reasonable assumptions about labour force growth and the ratio of informal/formal employment— that official unemployment will have risen to roughly 33 percent as of 2014”.

There are very strong elements of truth and reality in both the CID and UNPD studies, which should really shape developmental thinking and planning in South Africa over the next few years. This is not to underestimate ASGI-SA, but to highlight the fact that although there is a rigorous commitment to public infrastructural investment and skills acquisition within the ASGI-SA framework, the point about employment creation and poverty reduction has been missed. Most of the employment opportunities that will come out of ASGI-SA propelled projects are largely in the Construction sector, and virtually always, a huge number of jobs in the Construction sector are low quality and unsustainable.

The production of artisans and some intermediary skills in Further Education and Training sectors should indeed be welcome, yet calculative doubt expressed over the extent of the impact such will have on the massive unemployment and poverty challenges South African encounters currently. Second economy interventions and sector investment strategies, which ASGI-SA sets to accelerate; are presently incoherent, and somewhat given lesser attention over other factors such as skills production and acquisition. The proverbial cart is definitely before the horse.

To effectively and practically address these challenges, the UNDP recommends that attention be given purposely to two broad sectors of the South African economy—activities that will receive large-scale credit subsidies and those that will be unsubsidized. According to the UNPD, the subsidized activities will include small-scale agriculture, small and medium-sized enterprises, and larger-scale businesses that either operate at high levels of labour intensity or can generate substantial employment multipliers. The UNDP proposes that these subsidized economic activities account for roughly 20 to 25 percent of all investment activity in South Africa, whilst expanding at roughly 8 percent annually through to 2014. For the remaining sectors of the economy, it is proposed that economic growth accelerate to roughly 4.5 percent per year through 2014.

Out of these proposed growth and expansion patterns, the UNDP asserts that certainly an 8 percent growth stimulus for the subsidized activities and a 4.5 percent growth rate for the rest of the economy could decline unemployment to about 15.4 percent as of 2014. And following the logic of Rodrik’s argument, it would entail that to realise high levels of employment creation and growth, South Africa should massively industrialise, as industrilaisation could absorb a significant number of the low skilled population into sustainable employment. This would genuinely entail that a comprehensive and workable industrial strategy is developed and adopted to manifest the essence of a shared growth, as envisaged by ASGISA.

Now, ASGI-SA’s major focus on infrastructural investment will certainly reduce the cost of doing big business, by enhancing the transport and logistics capacity in South Africa. How this is going to lead to shared growth in not clear, because empirical and historical evidence shows that trickle down benefits of economic growth hardly addresses the development and poverty challenges. These are some of the issues, which in the course of engagement, the South African policy makers in government, business and labour should keep in mind. Pause.